Accelerating Towards the End of the Euro

Cyprus has swallowed the bitter pill and skimming off the cash they need for the accounts of depositors with more than €100k.  Some say this is theft.  This was my first reaction.  And if the funds were being used to simply bail the government out then I still believe it to be theft.  But those deposits were not secured.  So if the bank does go belly-up the funds should be at risk.  Maybe people will be more judicious with their money in the future if they realize this is the case.

However, this all pales in significance compared to the ramification of comments by Jeroen Dijsselbloem.  In an article in the UK Telegraph Mr. Dijsselbloem is quoted as asserting,

If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders.

He’s more than hinting that Cyprus’ solution could be a blueprint for other troubled nations in the Euro.  And Mr. Dijsselbloem isn’t a minor figure in the cogs of Brussels, he’s President of the Board of Governors of the European Stability Mechanism.  I cannot think of anything more destabilizing to Greece, Spain, Italy and even France than suggesting its citizens, with significant deposits, may need to cough-up for the mistakes of their banks.  This will surely start the flood of cash out of the these countries and into Germany (if they’d like to keep their money in Euros), the UK or the US.  The pain for the struggling nations will be too much and the end of the Euro, as we know it, will come.

The irony that the President of the European Stability Mechanism made these destabilizing comments is not to be missed.  As is often the case, when governments set out to do one thing their actions often result in the opposite result.